Although outgoing European Commission president José Manuel Barroso, on his late-August visit to Vietnam, presented the planned EU-Vietnam free-trade agreement (FTA) as a nearly finalised deal – and Vietnamese state media predict the signing will happen in October – the Vietnamese textile industry is still unsure about the FTA’s potential impact.

Anxiously awaiting an announcement on what rules of origins will apply, industry sources warn that Vietnam’s up- and mid-stream textile plants are so dependent on imported inputs that if the FTA does not cover raw materials acquired outside the country, the whole pact will be meaningless to them.

“In our three Vietnamese factories, we use many different raw materials the country cannot produce, so that we need to import them from China, Korea, India, Malaysia and so forth,” said Michael Grosbøl, CEO of Danish workwear manufacturer Mascot International, which has three plants in Vietnam. Speaking to WTiN, he said: “If the rules of origin will work out strict, the FTA’s textile-tariff reductions from about 12% to 0% would not benefit my company at all.”

However, with generous rules of origin, Mascot’s Vietnamese operations would become globally much more competitive through the FTA.

In the global textile supply chain, Vietnam primarily delivers labour, on which it is more competitive than China in terms of the supply and wage scale. But the country’s spinners churn out mainly basic acrylic and acrylic-cotton yarns, while its weavers, dyers and finishers are also generally far from being able to supply raw materials of the quality require to meet the EU’s stringent, such as the Oeko-Tex Standard 100 certification system and compliance with the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) system.

According to Mr Grosbøl, Mascot International had recently harboured plans to invest in a Vietnamese dyehouse, but the perceived local ‘total lack of skill’ prevented the firm from carrying out the transaction, so that the fabric still has to be dyed in the UK, China, Korea and Thailand, among other countries.

“You need managers and technicians with an understanding of quality, and you need a laboratory, a colour kitchen and computerisation,” he said. “But the expert team we had flown in just shook their heads, declaring a co-operation mission impossible, given all that backwardness they encountered.”

Meanwhile, Bui Trong Nguyen, secretary general of the Saigon Association of Garment-Textile-Embroidery-Knitting (AGTEK) told WTiN that Vietnam’s own up and mid-stream textile plants would be able to supply more sophisticated yarns ‘in three to five years at the soonest’.

Mr Grosbøl foresees a 15-year timeframe for dying processes and finishing, with his bleak assessment based on the experience of China, which “spent many years to get to that point and is still not at same level as EU suppliers of fabrics.”

But there is yet another point of concern: Vietnam-based textile companies hope the EU-Vietnam FTA will address labour restrictions. In recent years the Vietnamese authorities have made it increasingly difficult to obtain work permissions for expat staff – requiring, for example, since 2012, that each extension of an expat work permit should be matched by a training contract with a Vietnamese national, in order to replace the expat staff member once the extension expires.

“All expats are subject to these regulations, even the most senior, at CEO level,” Mr Grosbøl observed. “Such restrictions have been met with repeated appeals from EuroCham [the European Chamber of Commerce in Vietnam] and other business organisations, but so far the Vietnamese authorities seem adamant to continue with even more restrictions.”

The global market for halal food is expected to grow from US$698bn in 2012 to reach US$830bn in 2016, according to Malaysia’s department of Islamic development, and manufacturers in its country and neighbouring Thailand are competing to service this demand. Jens Kastner reports.

The food industries in Malaysia and Thailand are seeking to demonstrate their ability to produce and market food and beverages complying with Islamic religious standards.

Large government-sponsored special industrial parks dedicated to halal are either under development, such as in Thailand’s southern Songkhla province, or operating, such as in Malaysia’s Selangor and Melaka states. And both countries are tightening their halal food production regulations.

The demand for products to be certified as halal has been intensified by the fact that most halal food is today no longer produced by Muslims – a particular issue in majority Buddhist Thailand. The recent frenzy over false claims that chocolate bars made by Cadbury sold in Malaysia contained pig DNA illustrated what is at stake for food processing companies.

“The definitions are changing profoundly; in the past, Arab countries never demanded a halal logo for Thai canned tuna because they felt [relatively unprocessed] tuna is naturally halal,” said Dr Winai Dahlan director of the halal science centre at Thailand’s Chulalongkorn University, in an interview with just-food.

“But now there is this new rationale that every pineapple passing the industrial process must be verified as halal.”

Dr Winai noted this approach, with its demands for more checks and production management by food manufacturers, has been encouraged by the Organisation of Islamic Cooperation (OIC) countries’ establishment in 2010 of the Istanbul-based Standards and Metrology Institute for the Islamic Countries (SMIIC). The SMIIC aims to craft a common standard for the some 300 halal certification bodies currently working in more than 125 countries, most of which are non-governmental organisations (NGOs), including associations established by the Muslim minority groups.

According to Malaysia’s international trade and industry ministry, the country exported US$10bn-worth of halal products last year with the food and beverage sector accounting for about 40% of these exports. Thailand’s halal food and beverage export performance pulled even with Malaysia last year, making both countries share fifth place in the world’s halal top ten, after Brazil, the US, India and China, Dr Winai said.

Major export markets include fellow Association of Southeast Asian Nations (ASEAN) members, most notably Indonesia with its 214m Muslim consumers. Sales to the United Arab Emirates, Saudi Arabia and Egypt are also important, with Chinese sales also rising.

Reflecting Malaysia’s aspirations to become the world’s halal hub, the country’s Third Industrial Master Plan 2006-2020 provided for the development of ‘Halal Parks’, where certified operators, industry players and logistic operators enjoy a variety of perks, including government subsidies. Meanwhile, Thailand, which has most of its some 3,500 facilities involved in halal food production clustered in its central region north of Bangkok, plans to establish a large halal industrial estate in its south. This would be near the Malaysian border, to supply halal products more efficiently to the ASEAN common market to be launched next year.

“The greatest potential is for finished products containing vegetables, fruits and seafood, with medium-sized companies probably to benefit the most,” said Dr Winai.

Mohd Suhaimi bin Mohd Yusof, assistant director of Malaysia’s department of Islamic development’s (JAKIM) halal hub division, observed that “processed food and beverages have managed to attract most consumers and market access at this point,” reflecting that more than 90% of applications for halal certifications with JAKIM fall in these two categories.

Whereas investment in special machinery is generally not needed for food manufacturers turning to halal, the main challenges are monitoring the supply chain and the stringent separation from non-halal production in factories.

Dr Winai says it is quick and inexpensive to obtain the official Thai halal logo for compliant factories, and that Thailand’s Halal Science Centre, of which he is the founder, “has top-notch laboratories and one of the world’s best data bases for supply chains with comprehensive raw material info.” These support factories that, for example, process bananas with egg yolk or galantine, which may, for whatever reason, contain pig DNA.

According to Dr Winai, a “real” Cadbury case can therefore not easily happen in Thailand.

Suhaimi said the same about Malaysia, despite the false alarm having occurred there. He holds that the Cadbury issue was blown out of proportion by social media users with responses from a few NGOs further aggravating the issue.

“While Muslim consumers have the right to be overly sensitive with the porcine DNA issue, they should also be informed on how halal certification is implemented, and how cross contamination can occur on halal products, while awaiting for the competent authorities investigation to complete,” Suhaimi said.

The issue was solved when JAKIM issued test results which confirmed the products were free of porcine DNA, he noted. Companies and governments agencies involved in Malaysia’s halal certification system “also learned from the issue as coordination between the agencies has been further improved,” he said, adding JAKIM had used the incident to publicise the quality of Malaysian halal certification.

Taiwanese businesses in Vietnam have borne the brunt of rampaging mobs protesting China’s recent installation of an oil rig in disputed waters in the South China Sea. The mobs ransacked and torched hundreds of foreign-owned factories, most of them Taiwanese rather than mainland Chinese.

The attackers, who appear to have been allowed by the government to cause mayhem after the encroachment of the drillship into Vietnam’s exclusive economic zone, didn’t bother making a distinction between China and Taiwan. The riots killed 20 protesters as well as non-Taiwanese ethnic Chinese and Vietnamese staffers and injured many more at dozens of Taiwanese-owned factories, including ones churning out foodstuffs, textiles, steel and tires. They were either damaged or have temporarily suspended operations or both, according to filings with the Taiwan Stock Exchange.

Although Taiwan ranks behind South Korea, Japan and Singapore as Vietnam’s top sources for foreign direct investment, the Vietnamese government has shot itself in the foot by not quickly and decisively stopping the riots. Taiwan’s Vietnam-bound FDI, driven by Taiwanese firms fleeing China’s high costs, less favorable treatment by Chinese authorities and growing environmental regulation in China, has in recent years boomed. Taiwanese FDI in 2012 grew by 106 percent and 70 percent in 2013, now totalings US$28.5 billion.

While among the terrified Taiwanese expatriate community there is now much talk about withdrawal of investment, they appear more likely to stay, however reluctantly, primarily because their residency in Vietnam gives them proxy access to major western markets and because there are few places for them to go economically.

They are reluctant indeed, however.

“Since the Vietnamese government is incapable of protecting investors from abroad, we believe foreign investors will have to reconsider their future investments in the country,” said Hong Fu-yuan, president of the Vietnam division of Formosa Plastics Group’s (FPG), Taiwan’s largest industrial conglomerate, producing steel, textiles and plastic in Vietnam.

The attacks on FPG – offices, factories and dormitories were stormed – have led to the firm reconsidering a US$500 million capacity expansion project, Hong said. Taiwanese media have since quoted numerous Vietnam-based family-owned small and medium sized enterprises saying they are now considering leaving the country for good.

But next to the rising costs for labor and land in China a factor to make them stay is that Vietnam, unlike Taiwan, is a member in Trans-Pacific Partnership (TPP) negotiations to create the US-led free trade pact, which would eventually cover 40 percent of the world’s GDP. The agreement still faces considerable bilateral negotiations with Pacific governments and is also stalled in the US Congress until at least after November elections.

The Taiwanese, who almost certainly won’t join TPP for a long time to come due to China’s objection, see Vietnam as the only plausible low-labor cost conduit to the TPP market. This holds true particularly for Taiwan’s upstream textile industry, owing to the TPP’s “yarn forward” rule that stipulates that textiles enjoying the pact’s zero tariff treatment must be made from yarn produced in a TPP member country.

Since Vietnamese manufacturers lack the capacity to produce enough yarn and garments, they currently still rely for sufficient supply mainly on non-TPP member China. Business for Taiwanese-owned upstream plants within Vietnam’s borders would be boosted as soon as the “yarn forward” rule is implemented.

In this context in the past two months alone, Vietnam’s state media has reported that planned Taiwanese investments in the textile industry exceed US$200 million, creating nearly 10,000 jobs, and it is not yet clear to what extent such projects that would lift Vietnam’s international competiveness greatly will be affected by the riots.

However, if the assessment of Bert Lim, president of the Taipei-based World Economics Society think tank and an economic advisor to Taiwanese President Ma Ying-jeou, proves correct, Taiwanese companies are unlikely to significantly reduce their FDI in Vietnam despite the brouhaha.

“I talked to the Formosa Plastics CEO [Chen Wenchi] just yesterday, and there clearly is no panic discernable among the company’s leadership, as actually only a few FPG computers and electronics were stolen,” Lim told Asia Sentinel.

“It is important to understand that the Taiwanese businesses that were attacked are mostly clustered in the Pinh Duong province, which was targeted because it is being developed by Chinese firms, while Taiwanese-owned factories elsewhere in Vietnam, including the ones producing electronics, were largely unaffected.”

Lim dismissed a flow of media commentary promoting the notion that the Taiwanese firms may now flock back to China, “as the cost factor prohibits this,” or move to Myanmar, where an ongoing Taiwanese FDI boom will, he says, come to an end before long, “because the days of incentives granted by the Myanmar government are numbered.”

Elaborating on how political risk is traditionally put up with by the Taiwanese expatriate community (now seen on the TV screens being airlifted out of Vietnam), Lim resorted to historical comparisons.

“In the 1960s, we had anti-Chinese rioting in Jakarta but Taiwan’s FDI in Indonesia continued to increase until well into the 1980s,” he said, “and it was pretty much the same with anti-Chinese rioting in Malaysia and the Philippines,” he said. “And the reason the Philippines has now very little Taiwanese FDI is not because of political risk but because of red tape, which is worse from the investors’ perspective.”

Fate of executed brothers as warning for Taiwanese expatriates in China

Taiwan’s legal experts are up in arms after the government executed two convicts last week on what was regarded as shaky deciding evidence and witness statements supplied by China’s Public Security Bureau.

The brothers, Tu Ming-hsiung and Tu Ming-lang, were among five prisoners executed on April 29. To the end, the brothers insisted they were framed by Chinese police for a series of murders in China’s Guangdong Province. Legal analysts say the brothers lost their constitutional right to cross-examination because the Taiwanese courts flatly accepted Chinese authorities’ contribution to the trials, warning that a precedent has been set with ominous repercussions for the hundreds of thousands of Taiwanese expatriates living in China.

Zheng Wen-xi, Ministry of Justice Director-General, defended the handling of the case in an interview with Asia Sentinel.

“The court ordered police to collect evidence, which the police located in mainland China, and that of course with the assistance of the Gongan (Public Security Bureau),” Zheng said. “Then, after the evidence was taken back to the court, it was strictly examined during the trial, and the principle of due process was not violated.”

Zheng emphasized that the evidence provided by China’s Gongan wasn’t the only evidence taken into account by the Taiwanese courts, “and that all evidence collected in mainland China was subject to particular critical examination by the Taiwanese courts in acknowledgment of the differences in the justice systems of Taiwan and mainland China.”

“The brothers said they were framed, and the way the victims were murdered reportedly points not at them but at military-trained killers. All I know for sure is that they were deprived of their right to cross-examine witnesses,” said Lee Chia Wen, an associate professor for criminal procedure at Taiwan’s National Cheng Kung University, who came upon the case while researching cross-border crime fighting. “Because the Taiwanese court now accepts evidence from China’s untrustworthy legal system, there is a high possibility that something similar will happen again to some of the many Taiwanese working, studying or traveling in China.”

Together with their father, who before the executions died in jail, the Tu brothers were found guilty in 2002 of the murders committed a year earlier of a Taiwanese businessman, three of his Taiwanese employees and a Chinese woman. According to the Taiwanese courts, the trio after the murders fled back to Taiwan, where they were arrested following a Chinese police alert, which was communicated to Taiwan’s judiciary through informal channels. At that time, the “Agreement on Jointly Cracking Down on Crime and Mutual Legal Assistance Across the Strait,” signed by Taiwan and China in 2009 hadn’t yet been in place.

The three were cleared in the first trial in July 2002 by southern Taiwan’s Tainan District Court, partly on grounds that the Chinese police did not send forensic evidence such as tape recordings, clothes or bags used in the crime, to Taiwan but only photographs. Contributing to the court’s decision to let them off the hook was the fact that a Chinese taxi driver cited by the Chinese police as a key witness against the defendants couldn’t be cross-examined because he was untraceable for the Taiwanese authorities.

The Tainan High Court in November 2002 overturned the lower court’s ruling, however, sentencing the defendants to death. The Tu brothers appealed to the Supreme Court, leading to six re-trials, resulting in the finalization of their death sentences in 2012.

“Strictly speaking, the Chinese police helped the Taiwanese police, but the Taiwanese court did not ask them to back up the evidence more, so that the right of the defendants to cross-examine witnesses and evidence was jeopardized,” Lee said.

“Adding insult to injury, the Supreme Court in its final statement explicitly expressed its high confidence in China’s legal system despite everybody knowing that this is not warrantable.”

Lee said the brothers’ execution also highlights a flaw in Taiwan’s own legal system, which is usually held in high regard for being by and large up to western standards. There has long been a tendency among Taiwanese judges to accept hearsay exceptions, their mindset being that otherwise too much valuable information cannot be used in the court.

“The court believes it hasn’t done anything special in the Tu brothers’ case because even though it is unconstitutional, exceptions to the right to cross-examination are often made in Taiwan, for example when a witness dies or cannot be traced,” Lee said.

Just as the informal judiciary channels between Taiwan and China that led to the Tu trio’s downfall were largely uncontroversial in Taiwan for the obvious reason that it has always been tempting for Taiwan’s bad guys to hide in China, the Agreement on Jointly Cracking Down on Crime and Mutual Legal Assistance Across the Strait is often cited as a poster child of cross-strait cooperation.

Since its implementation, the pact has led to the mediagenic repatriation of hundreds of wanted criminals including suspected murderers, telecom fraudsters, drug dealers, economic offenders and corrupt officials, the most recent prominent cases being two suspects in a botched high-speed train bomb case that failed to hurt anyone last year as well as former Bamboo Union gangster boss Chang “White Wolf “ An-lo, who is now free on bail nonetheless, vociferously steering a political party dedicated to achieving cross-strait unification.

According to Chen In-Chin, a professor at Taiwan’s National Central University’s Graduate Institute of Law and Government, one problem with the cross-strait judicial agreement is that its wording is vague, much vaguer than a similar agreement Taiwan has with the United States.

“The Taiwanese government kept it deliberately ambiguous because otherwise Taiwan’s courts would have to challenge China’s authorities’ adherence to due process, which our government doesn’t want, given that it lacks the guts to stand up to China,” Chen charged.

And as to whether Taiwanese courts should accept evidence and witness statements provided by the Public Security Bureau in the first place, Chen noted that although the bureau has been making improvements, all criminal cases in China are still dominated by them, “and when the Gongan (the Public Security Bureau) says ‘yes’, prosecutors won’t say ‘no’, and then the courts follows what the Gongan says.”

Making matters worse, Chen said, is that the Chinese authorities go after Taiwanese fugitives only arbitrarily, as proven by the case of Chen Yu-hao, the onetime chairman of the Tuntex Group, who has been a fugitive hiding in China since his indictment for embezzlement in Taiwan in 2003. In his factories in Fujian province, Chen Yu-hao is now openly making a fortune by producing paraxylene (PX), a chemical essential to the manufacture of plastic bottles and polyester clothing.

The logistics industry sees big opportunities for growth in the years ahead.

Last year the Port of Kaohsiung ranked 13th internationally in terms of container throughput, a drop of 10 places in just about as many years. Although the volume was still substantial – just under 10 million TEU (twenty-foot equivalent units, the standard measure of container traffic), the decline in the ranking is largely attributable to the relocation of many Taiwanese manufacturing facilities to China, as well as successive governments’ emphasis on developing the IT industry with comparatively little attention paid to the logistics sector.

But lately there has been growing optimism that Taiwan can more effectively leverage its strategic geographic position in between China (the “world’s factory”), the United States, the Association of Southeast Asian Nations or ASEAN (set to become the world’s biggest common market in 2015), as well as other dynamic APEC member countries. The primary beneficiaries of a potential cargo boom, however, would be Taiwan’s supporting industries, such as freight forwarders, warehouses, and custom brokers, and not necessarily the island’s shipping lines and airlines.

“Our business has been fine despite the weak global economy, but that of the shipping lines less so because demand and supply are unbalanced,” says Michael Tai, chairman of the International Ocean Freight Forwarders & Logistics Association, Taiwan’s biggest logistics industry association. “They have lost big money in the past three years because they focused on enlarging capacity by building ever bigger vessels, with the global economy then not doing as well as they had expected.” Tai is founder and CEO of Taipei-based Transworld Transportation, which he describes as the second-largest logistics company in trans-Pacific trade after Expeditors International of the United States.

While Taiwan’s major container shipping lines – Evergreen, Yangming, and Wanhai – thus largely face a challenge of overcapacity for their port-to-port services, logistics companies benefit from increasing requests from importers and exporters for additional services, such as trucking. Cargo has to be picked up at the factory, moved to the port, and then handled by a customs broker before being shipped out. On the other end, after it again clears customs, it is stored in a warehouse and eventually distributed to retailers. In industries such as consumer electronics, where products come in ever greater varieties and colors, and with thousands of spare parts involved, these processes have become so complicated that neither seller nor buyer nor shipping line could possibly take on the task with just their own resources, even if they had the necessary licenses.

According to Tai, the Taiwan government’s new plan to develop Free Economic Pilot Zones (FEPZs) – to include Taoyuan International Airport and the six major ports of Kaohsiung, Keelung, Taipei, Taichung, Anping, and Suao – may greatly boost demand for these types of services, provided that authorities remove regulatory hurdles as promised. “Singapore, South Korea, and Hong Kong have been clearing cargo electronically for more than 10 years, but here the law hasn’t been changed in the past three decades,” he says. “While all that the regional competitors require is a single code, every shipment coming into Taiwan for transit still has to submit import documents, which then have to be changed into other documents for export.” If the effort to simplify procedures in the FEPZs is successful, for example, a company operating in one of the zones could repair smartphones and send them back on the same day or the next, a crucial ability if the Taiwan zones want to compete with other regional zones.

Stage 1 of the FEPZs began last year. Stage 2 requires legislative approval, and the necessary bill has not yet been enacted by the Legislative Yuan. “We have been lobbying hard for many years for easier customs clearance, but now it is 90% through [with respect to the FEPZs], and President Ma Ying-jeou is strongly supportive of the issue,” Tai notes. “Once the law is changed, it will be very helpful for the Taiwanese economy since cargo to Shanghai from different Western countries can all be combined together with Taiwan export cargo in the same container in our FEPZs,” he says. Given the exodus of so much manufacturing from the island, Tai considers that the only option for Taiwan’s economy to improve is to further develop its trading and transportation capabilities.

Labor conditions ease

Bert Lim, president of the Taipei-based World Economics Society think tank and an economic advisor to President Ma, notes the quiet elimination in recent years of a major obstacle preventing FEPZ ports from becoming attractive to logistic companies: labor conditions at the ports. “Taiwan had in the 1990s already tried its luck with free trade port pilot measures, but the labor recruitment situation in the ports used to be very unattractive for investors due to the ‘heritage system,'” Lim says. “Taiwanese port jobs were handed down from father to son with few exceptions, and that was a major hindrance, particularly to foreign companies who wanted to efficiently repackage their goods before reshipment to other places, such as China.” In effect, the heritage system meant that companies could not handle their own port-area operations with personnel chosen on merit alone.

The scrapping of this heritage system was facilitated by a reorganization in 2012 that brought about the establishment of the Maritime and Port Bureau (under the Ministry of Transportation and Communications) and the Taiwan International Ports Corp. The former is now the government body in charge of all maritime- and port-related public administration, while the latter is an independent, though still government-owned company in charge of harbor management and development. Previously, the four port authorities of Keelung, Taichung, Kaohsiung and Hualien were separate jurisdictions. The revised organizational structure provided an opportunity to change various operational practices, including the heritage system.

Lim adds, however, that a large question mark still hangs over the future potential of Taiwan’s ports. In China, transportation-related departments had shown interest in expanding cooperation with Taiwanese harbors, and the cross-Strait Service Trade Agreement signed last year was intended to provide a framework under which the two sides could enter into further agreements on shipping cargo services. But objections from the opposition Democratic Progressive Party have kept the agreement bottled up in the Legislative Yuan. “Because the pact remains stalled in the legislature,” says Lim, “we don’t know how service charges, regulations, and monitoring mechanisms between cross-Strait authorities might eventually work out.”

Nevertheless, port officials on the two sides of the Strait are diligently upgrading their relations at the working level. According to Port of Kaohsiung Harbormaster David Cheng, Taiwan port officials have been traveling to China on a monthly basis to inspect ports, including river ports located far inland. “We’re still in the stage of introducing ourselves to one another and signing MOUs [memorandums of understanding],” he says. “This is good for both sides. The overall idea is that in the future smaller Chinese vessels can carry cargo from China to the Taiwanese ports for further trans-Pacific shipment on vessels operated by Taiwan’s shipping lines, which are reliable and efficient,” Cheng says.

He adds that without much fanfare the Port of Kaohsiung late last year already took a step toward restoring its old glory. Cheng is referring to a decision by the London Metal Exchange, the world’s largest non-ferrous metals exchange, to designate Kaohsiung as one of its delivery ports in this region. Following its inclusion in the network, various types of metal mainly destined for China will go through Kaohsiung Port, greatly boosting the warehouse business there. None of China’s own ports are designated as a delivery location, even though China is among the world’s largest metal importers. (Shanghai reportedly turned down the opportunity because it would have necessitated some operational changes). “A new port area to accommodate the warehouses in Kaohsiung will be completed in Q3,” Cheng says. “Automatically, the financial industry will pay more attention to us, as they are very interested to invest in this field.”

As to the prospects of the other FEPZ ports, Chiu Rong-her, professor of shipping and transportation management at National Taiwan Ocean University, predicts that the Port of Taipei will draw substantial vessel traffic from the Port of Keelung, which is too small, and that the Port of Taichung, originally designed for bulk cargo, will reorganize its container terminal. “Meanwhile, the Port of Hualien, which is not to become an FEPZ port, may launch roll-on/roll-off ferries for passengers, cars, and trucks, connecting it to China, focusing primarily on tourism,” he says.

Aviation sector

Generally, Taiwan’s airlines make good money on passenger business but take a loss on the cargo side. One reason is that computers and mobile phones, which in the past were virtually all shipped by air, are not being replaced by consumers as frequently as they used to be, meaning rapid delivery by air freight has become less important than the cost advantage of shipping by sea. “A few years ago, if you had the money, you got yourself a new cell phone every three months,” says Tai. “But nowadays I am still happy with my iPhone 4 and don’t see why iPhone 5 is so significantly better.”

Besides the continuing relocation of Taiwanese electronic production facilities to China and Southeast Asia, another factor in the decrease in the cargo business is that 3C products are getting smaller and lighter, which erodes carriers’ margins because cargo is charged by weight.

The size of aircraft has also been increasing, aggravating the oversupply problem. “On the demand side, air trade showed only slight growth in 2013,” says Anita Wang of China Airlines’ Media Affairs office, adding that CAL’s forecast is in line with those of the International Monetary Fund, International Aviation Transport Association (IATA), and Boeing that world air-cargo volume will see 3% to 4% growth in 2014. “But on the supply side, growth in global wide-body belly capacity is predicted to remain at around 5% in 2014, which will result in capacity continuously outpacing global demand.”

In terms of strategy for 2014, the Taiwanese flag-carrier will focus on cargo revenue management, which aims to optimize revenue through “re-mixing” cargo origins and destinations, cargo products, and customers, Wang says. The company plans to introduce more temperature-controlled containers to enhance its “cool chain” service, and to pay increased attention to emerging markets such as Vietnam, Indonesia, and Latin America. Moreover, CAL will seek to gain a firmer foothold in the booming cross-Strait and global e-commerce business and express mail service (EMS), she says.

“China Airlines carried 4,854 million ton-kilometers of cargo in 2013, up 6.9% in tonnage from the previous year,” Wang notes. “But given the combination of slow global economic recovery, overcapacity, and volatile oil prices, achieving air cargo growth will remain challenging in coming years.” While CAL for the time being expects to stick with the 18 B747-400F freighters it currently has in service, EVA Airways, Taiwan’s second- biggest carrier, announced in late 2013 that it will reduce its freighter fleet by more than a third in the face of overcapacity.

But a big share of the business is being captured by mainland Chinese companies.

BY JENS KASTNER

Given that the Taiwanese love English-language abbreviations, bargain buys, and convenience in general, it is no surprise that the terms “B2C,” “C2C,” and “O2O” have penetrated the local parlance as e-commerce reshapes the island’s retail landscape. Facilitated by home delivery, convenience store pick-up service, and attractive group deals, Taiwan’s business-to-consumer (B2C) and consumer-to-consumer (C2C) online shopping markets registered revenue growth in 2013 of 18.2% and 12.3% respectively, bringing total revenue to NT$764.5 billion (US$25.5 billion), according to the Institute for Information Industry. The institute predicts growth in 2014 by another 15% to reach NT$879.4 billion (US$29.3 billion) and forecasts revenue topping NT$1 trillion in 2015

But it would be premature to pop corks to celebrate the performance of the local e-commerce platforms, as a large portion of the business is being captured by China-based operations. “Taiwanese consumers last year bought 8 million items on mainland China’s Taobao, which has a whopping 900 million products on offer,” says Alvin Bor, secretary-general of the Non-store Retail Association of the ROC, referring to Taobao Marketplace (淘寶網), an online shopping website run by Alibaba, China’s largest e-commerce company. “Taobao calls itself C2C, but some of it is actually B2C, while its offspring Tianmao (天猫) aims to provide higher quality products.”

Bor notes that since Beijing views Taiwan as one of its provinces, parcel postage rates from China to Taiwan are artificially low. In addition, Taiwan does not impose import duty on items valued below NT$3,000. Adding to Taobao’s attractiveness for Taiwan consumers is that payment on cross-Strait transactions is facilitated by China’s AliPay, which has established connections with numerous Taiwanese banks. As a result of all these factors, Bor says, AliPay has become the dominant force in Taiwan’s third-party payment market, for which a regulatory structure was officially finalized last year, 15 to 20 years after China. “Most merchandise sold in Taiwan’s night markets is now sourced via Taobao, causing a major headache for Taiwanese platforms, as well as for the tax collectors,” he notes.

In its 2013 ranking of sales by Taiwanese internet retailers, U.K-based market research firm Euromonitor placed Yahoo! Kimo first with a market share of 11.4%, followed by PChome (8.4%), Fubon Group’s Momo (6%), PayEasy (4.8%), and Rakuten Taiwan Ichiba (3.5%). According to local market researcher EOLembrain, PChome’s site saw the most traffic in 2013, followed by Rakuten.

Other major players operating popular B2C platforms in Taiwan include the United Daily News (UDN) Group, President Chain Store Corp., Far Eastern Retail Group, and Dongsen TV’s ETmall, as well as Gomaji, whose primary focus is group buying, similar to the United States’ Groupon.

The business model of Japanese-originated Rakuten, which is aiming for 50% revenue growth in Taiwan this year, is labeled “B2B2C.” Under this approach, merchants open a virtual shop on Rakuten’s platform with an initial one-time payment of NT$27,000, followed by monthly rent of NT$1,000 and a 3% to 5% commission on each deal. Currently, Rakuten Taiwan has 2,500 of these shops and educates their owners in e-commerce strategies through courses held in Taipei by its “Rakuten University.” Each shop is also coached by an “ECC” (e-commerce consultant), who provides guidance on such aspects of the operation as target setting, pricing strategies, and customer communication.

Grace Lo, Rakuten’s general manager for Marketing & Business Development, says the platform got a huge boost last year from its revolutionary “picture search” feature, which works similarly to face recognition software. “People no longer have to key in words to search a product, but instead take a picture of something they desire in the real world, upload it, and let the system find such a product in one of our shops for a good price,” she explains.

A key trend is mobility

Another current major trend shaping the market is mobility. Lo notes that new apps have made it convenient to use a smartphone instead of a PC for many activities, with consequent changes in the time of day when transactions take place. “Increased use of mobile devices means that more purchases are made while commuting and before bedtime, which is a shift that demands our attention,” she says.

UDN Shopping – a genuine B2C model where merchants pay a settlement of 10% to 15% per deal – confirms this strong trend toward mobility. General Manager Apollo Sun reports that while just 2% to 4% of clicks on the UDN shopping site were made with mobile devices in early 2013, the rate had reached 12% by the end of the year. UDN Shopping’s total revenue doubled in 2013 to reach NT$1.5 billion (US$50 million), with a target of NT$3.5 billion set for this year, Sun says. One advantage over the B2B2C model is that the merchant incurs no costs if the merchandise doesn’t sell, he notes. “But more importantly, if you cooperate with us, you have the UDN group’s whole media range – with websites, TV news channel, and newspapers – as your partners.”

He does express concern about Chinese competition, however, noting that although Chinese products have an image problem in Taiwan, the fact is that most products sold by Taiwanese platforms also are made in China. Sun considers that Taobao was wise to set up Tianmao, which carefully selects its suppliers to increase its trustworthiness. “But Chinese consumers still cannot access the UDN shopping site due to its connection with the UDN news website, while other Taiwanese e-commerce platforms might be blocked for other reasons, including tax issues,” he notes.

The cross-Strait service trade agreement – signed last year but not yet approved by Taiwan’s legislature – will not provide much of a remedy, in Sun’s opinion. Under the agreement, Taiwanese online retailers can hold a 55% stake in joint ventures with Chinese firms as long as the operation is based in Fujian Province just across the Taiwan Strait from Taiwan. “But you would be competing with China’s top 10 online shopping websites in an environment where Taobao has 75% market share already,” Sun says.

Despite the challenges, some Taiwanese e-commerce firms have already taken up minority stakes in cross-Strait joint ventures, and ETmall and Momo plan to set up subsidiaries in China this year. Market observers believe that demand exists among wealthier Chinese consumers for Taiwan-made cosmetics, health foods, and other products. According to the Non-store Retail Association of the ROC, 2 million items were sold online from Taiwan to China in 2013.

In yet another market segment, online to offline (O2O) e-commerce, Groupon was initially the market leader in Taiwan, but was overtaken in mid-2012 by a local company, Gomaji, according to Rio Chen, Gomaji’s deputy general manager. Gomaji operates in three main channels – travel, food and shopping – with different settlement commissions for each category. “The settlement average could be higher in the beauty segment, as satisfied customers of beauty parlors, spas, and the like tend to sign up for membership instead of again purchasing vouchers with us,” Chen explains.

According to Gomaji’s own surveys, 75% of its customers are female, with the overwhelming majority in the 25 to 45 age bracket. Accordingly, Gomaji’s home delivery focuses on local delicacies in packages suitable for small families. “Housewives love it,” Chen says. “What costs NT$200 elsewhere might be purchased for NT$70 through us.”

Gomaji’s promotion channels include Yahoo! and Facebook, and it engages in cooperative campaigns with movie houses, local governments, and famous brands, most notably McDonald’s. It also publishes a magazine sold at 7-Elevens, is featured on 7-Eleven’s in-shop monitors, and sponsors a weekly TV show where local artists endorse the site.

Chen sees this strong local emphasis as the main reason why the company managed to squeeze Groupon’s share of the Taiwan market. “The O2O business model is inherently local,” she says. “We get the consumer online and bring them offline – to a local restaurant, a local fashion shop, and so forth. Only a local management team will truly understand the local customers’ preferences.” Chen adds that while Groupon does have a local team, “its senior management might be from Hong Kong or Malaysia.”

Acknowledging the strong standing that local players have with Taiwan consumers, eBay Taiwan joined forces with PChome in 2006 to form the joint venture Ruten, which now handles all local transactions. At that point, eBay Taiwan’s business model shifted to B2C exports, enabling Taiwanese suppliers to utilize eBay’s 40 websites across the world as retail platforms.

“Our sellers come from many corners – some are manufacturers, some trading companies, some online sellers,” says Clare Lin, head of eBay Taiwan Marketplace. “We provide open platforms for buyer and seller, and through PayPal we can support 26 currencies and also provide shipping solutions, as well as connecting the sellers to reliable warehouses in the U.S. and Australia.”

Lin adds that since shipping is usually a bottleneck in cross-border trade, eBay’s service includes working with premium shipping providers to obtain efficient and cost-saving packages for the sellers. “For these services, the seller pays us a low-cost insertion fee of US$0.30 or less per item and a final value fee on the transaction of between 9% and 12%,” she notes.

According to Lin, eBay has high hopes for retail exports from Greater China, because the area has very strong supply chains that eBay can help connect to mature consumer bases in the United States, Australia, and Europe. Transactions to emerging markets often go through eBay’s U.S. or U.K. sites.

“Owing to the impressive flexibility of our Taiwanese sellers, they managed to sell to buyers in 200 countries over the past three years,” Lin says. “In June 2013, year-on-year growth in export value to Argentina, Russia, and Brazil reached 162%, 38% and 37% respectively.”

Further, from 2006 through last year, the sales volume of eBay’s Taiwan sellers every year has achieved double-digit growth, with a similar result expected for this year. Momentum was strengthened in 2013 by improved growth in the key corridors of Germany and the U.K., a significant achievement given the language barrier in Germany’s case and the high customs duty in the whole of the European Union. Looking ahead, Lin says, increased export business is likely in the popular categories of “home and garden” and “auto parts,” both of which have a very strong supply base in Taiwan for manufacturing and R&D.

Recently eBay Taiwan has also been putting more emphasis on branding. “Taiwan has many internationally unknown but good-quality brands that eBay can help to step onto the global stage,” Lin says.

In the near future, however, eBay Taiwan may also be among those having to share more of the market with Chinese e-commerce players. Alibaba Taiwan in mid-February announced its intention to launch an e-commerce association on the island to help local small and medium-sized enterprises break into the global market.

Tour guides on the island are encouraged to shun protesters when showing around Chinese tourists.

Taipei, Taiwan –Trying not to lose any of the Chinese tourists she is gathering outside the Taiwanese capital’s iconic skyscraper Taipei 101, tour guide Ku Su-zhi holds up a pointer with a little blue flag in order to make herself conspicuous in the Sunday afternoon crush. Every now and then, she feistily tells off a handful of Falun Gong activists trying to approach members of her group.

In a bid to shift from reliance on the export industry, Taiwan opened its doors to free-spending tourists from its rival China in 2008. Now, nearly three million Chinese come annually, generating handsome revenues for restaurants, hotels and shops.

But all along the Falun Gong movement, a religious sect persecuted in China but respected in Taiwan, has been following the Chinese tour groups at every turn, exposing them to graphic pictures of torture victims and organ harvesting. The Chinese tourists tend not to react to this, presumably because decades of autocracy at home have taught them to stay clear of politics.

Meanwhile, Taiwan’s tour guides have been finding it difficult to handle the awkward situations. “Yes, we do have freedom of speech in Taiwan, but the Falun Gong people are really over the top,” Ku tells Al Jazeera. “As a tour guide I must protect my clients, so that they leave me no choice but to chase them off.”

She adds that some younger female tourists get scared when approached by the Falun Gong, and that visitors from northern China easily feel offended, “as they are more fond of the Communist Party”.

China and Taiwan hold historic talks

Chinese citizens who travel to Taiwan typically make their bookings with Chinese travel agencies, which then subcontract the sightseeing tours to Taiwanese enterprises.

Sheltering tourists

According to Flora Chang, a Falun Gong representative and professor of journalism at the prestigious National Taiwan University, this makes the Taiwanese tour guides susceptible to blackmail by the Chinese Communist Party.

“These guides have two motivations to drive a wedge between the tourists and the Falun Gong,” she says. “The first one is that the Chinese could land themselves in big trouble if they bring the brochures back to China, but the second one is that the Chinese communists warn them not to let the Falun Gong impact the people’s minds.”

And Tony Kung, a Falun Gong activist, puts the allegations in concrete terms. “If the communist agents who are secretly embedded in those tour groups report back that a certain tour guide hasn’t kept us at bay, the Taiwanese travel agency employing him loses its lucrative subcontract with the Chinese,” he says.

Falun Gong complaints

Apart from the tour guides’ practice of shielding the tourists from the Falun Gong and occasionally taking away their flyers, other clues point at their closeness to the Chinese Communist Party. According to Chang, the Taiwanese Tourism Bureau has long been bombarded with tour guides’ complaint letters regarding the Falun Gong, causing the bureau to issue a directive last October ordering Taiwan’s local governments to remove Falun Gong banners and billboards at tourist attractions.

“But, of course that is illegal in our free political system,” Chang says. “We made it very clear with the authorities that they cannot prohibit the Chinese tourists from looking at the Falun Gong material, and the Tourism Bureau indeed quickly backtracked and apologised.”

Still, according to a tour guide who wished not to be named, a Tourism Bureau-sponsored video is still shown to virtually all Chinese tour groups upon their arrival in Taiwan, advising them to stay away from the Falun Gong during their trip.

Meanwhile, at the Chiang Kai-shek Memorial Hall, a landmark swamped with hundreds of Chinese tour groups every day, a lone Falun Gong activist named Fan Jong-qin occupies about 15 square metres of public space with a carpet, billboards, petition-signing table and garden parasol.

There are no other activists, hawkers or commercial promotions at the massive downtown site, about as big as 20 football fields. Although someone doing what Fan does would normally face stiff administrative fines in Taiwan, he tells Al Jazeera that “police let [him] alone even though Taiwan’s pro-China unification political party presses one legal complaint after another”.

US support

An incident last July may be part of the explanation. Back then, three US congressmen – Frank Wolf, Dana Rohrabacher and Christopher Smith – penned high-profile protest letters to Taiwanese President Ma Ying-jeou, blasting his government’s plan to tear down Taiwan-based shortwave radio towers used by the Falun Gong to broadcast deep into China.

Two years earlier, Rohrabacher had threatened “to end his strong legislative support for Taiwan” as the result of a state-owned company’s decision to terminate satellite services for a Falun Gong-connected TV channel.

According to Gary D Rawnsley, a professor at the UK’s Aberystwyth University specialising in Taiwan’s public diplomacy, it is this kind of international attention that is bringing about Taiwan’s hands-off approach towards the Falun Gong. Rawnsley tells Al Jazeera that Taiwan’s handling of the issue is key in differentiating it from China, which claims to be the rightful ruler of Taiwan against the people’s wishes.

“While the government of the PRC [People’s Republic of China] politicises the Falun Gong, bans it and turns it into a bogeyman, the Taiwanese government gains political leeway by portraying Taiwan as a democracy that tolerates different belief systems, however crazy or unpalatable,” Rawnsley says.